The G7 reached an agreement to tax multinational companies on foreign earnings, allowing governments to impose taxes on US tech giants such as Amazon and Facebook. The details of the pact have yet to be determined, but the agreement reached during the G-7 finance ministers’ meeting in London, could be pointing to a tax between 15% and 20%.
In October 2020, the G7 and G20 nations signed the “Pillar One” and “Pillar Two” treaties, which propose taxation on all companies that carry out their activities in countries other than the location of their headquarters. The agreement directly harms technology companies that operate globally and are currently taxed in one country.
G7 leaders endorsed the agreement and now the G20 meeting taking place in Italy, in July is under the spotlight. The measure could also be endorsed by the 140 countries participating in talks at the Organization for Economic Co-operation and Development (OECD). The organization has stressed that the global deal is unlikely to be agreed upon before October.
Bertie Arjen, finance minister of Ireland – one of the countries benefiting most from the current tax system due to the number of technology companies based on the island – said that the agreement must meet the needs of “small and large, developed and developing countries”. The UK Chancellor of the Exchequer Rishi Sunak is pressing for the City of London to be excluded from the deal. US Treasury Secretary Janet Yellen is also trying to prevent foreign companies from moving their profits out of the country and is looking for alternative measures to the agreement, such as raising corporate taxes.
Italy’s economy minister, Daniele Franco, has stated that his country will withdraw its digital tax when an agreement is reached. French Finance Minister Bruno Le Maire said, “We have been fighting for four years […] in all European and international fora, here in the G7 and the G20, for fair taxation for digital giants and a minimum corporate tax.”
In light of mixed national reactions to the agreement, and the possibility of a global deal in October, national currencies and the technology-heavy Nasdaq could experience movement.
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